Complete the graph l FIGURE I 1.3 Price level (GDP price index.2009 = IOU) Potential GDP 0 I4 l5 IS I? I8 l9 Real GDP (trillions of 2009 dollars} 2. Figure 17.3 (above) shows the economy in its initial equilibrium. a. What is the equilibrium real GDP and price level? To move the economy back to potential GDP, should the Fed raise or lower the federal funds rate? Why? b. Supposing that the Fed undertakes the correct policy to restore real GDP to potential GDP. In Figure 17.3 show the effect of that policy. FIGURE 17.4 FIGURE 17.5 Federal funds rate (percent) Nominal interest rate (percent) RS 5 .....;. RD 90 91 92 93 3.1 3.2 3.3 3.4 Reserves on deposit at the Fed Real money (billions of dollars) (trillions of 2009 dollars) FIGURE 17.6 FIGURE 17.7 Real interest rate (percent) Price level (GDP price index) W N DLF 6.0 6.1 6.2 6.3 15.0 15.5 16.0 16.5 Loanable funds Real GDP (trillions of 2009 dollars) (trillions of 2009 dollars) 3. Use Figures 17.4 through 17.7 (above) to show the effect of the Fed conducting an open market purchase that increases the supply of reserves by $1 billion